I Have A Low Credit Score - What Should I Do?
Do you have a low credit score? Are you concerned that your credit score is going to affect your chances of being approved for loans? Don’t worry – there are ways of improving your credit score and you’re not stuck with a low score forever! Find out how to improve your credit score and maintain a higher score in the future.
What Is My Credit Score?
Your credit score is easy to check, but many Australians have no idea what theirs is or even how to find out. In fact, it’s not uncommon for people to not really understand what a credit score, or credit rating, is.
Let’s go back to basics. A credit score is a numerical score representing how much debt you have and how reliable you are in repaying it.
Credit ratings are used by lenders to decide whether to give you money and approve you for loans. Your credit score takes into account the information in your credit report, which is a record of how often you have borrowed money and the amounts you have borrowed, as well as any lines of credit – such as a credit card – that you have.
Lenders will calculate your credit score on a five-point scale. Scores can range from zero to 1200, with a higher score being preferred.
If you want to check your credit score, it’s simple. There are many online credit score providers, and you can use Compare & Connect’s partners at 1billto view yours. Simply provide some information about your finances and you will have a credit score in minutes. Checking your credit score is free.
What Does A Low Credit Score Mean?
A low credit score can affect your borrowing potential. It makes you appear less worthy of credit to lenders. Essentially, they do not want to take a risk on you if you have a history of failing to repay debt or taking too long to make repayments.
You would be considered as having a low credit score if your total number is less than roughly 500. Different credit reporting services will vary slightly on the exact number that they consider low, or below average.
Your credit score is used by lenders when deciding to loan you money to buy property, to approve you for a car loan, or to allow you to have a new credit card ortake out a personal loan. So if you want to do any of these things in the near future, getting your credit score back on trackshould be a priority.
What Can I Do To Improve My Credit Score?
Unfortunately, there is no quick fix for a low credit score. Your credit report will continue to show missed repayments and similar information for years. However, there are steps you can take to improve your credit score in the long run. The sooner you begin practicing better financial habits, the sooner you will be able to see an increase in your credit score.
Firstly, avoid applying for any new credit for a while. This can result in additional debt that will be factored into your ability to service a loan.
For any existing loans and debts that you have, always pay on time and see if you can consolidate your debts to make payments easier.
Pay your bills on time. If you typically put a lot of living expenses on your credit card, consider how you could cut back in some areas to live more within your pay range. Lowering the set limit on your credit cards will also help.
If you’re struggling to budget and manage money, you can seek the help of an experienced financial counsellor.